Financial Performance Feedback and R&D: A Comparison of Different Models
Abstract
Purpose: Performance feedback either supports or undermines a firm’s current strategy. R&D is one of the most favoured proxies for a firm’s response to performance feedback and this relation complements the commonly studied influence of innovation (R&D) on a firm’s performance with a backward loop. The performance feedback literature works with a number of models used to empirically test these propositions and this study aims to compare the most common measures and models to locate potentially preferred alternatives for further research.
Methodology/Approach: The research uses panel data with 1,558 observations. The sample consists of 208 US stock exchange listed firms followed over the years 2001-2015.
Findings: The research suggests that models with separate historical and social aspirations may yield a slightly better fit with the data. However, the findings also indicate differences among R&D related dependent measures and their implications for empirical research. These differences arguably also reflect the underlying construct heterogeneity, therefore, researchers should work carefully with them to correctly explain their findings and provide results comparable to the previous literature.
Research Limitation/implication: The limitations of the research rose mainly from the limited number of performance factors studied, which stems from an emphasis on standard financial performance indicators.
Originality/Value of paper: The research contributes to the performance feedback literature by complementing a previous study that compared different aspiration models (Bromiley and Harris, 2014). By focusing on financial performance and R&D variables, the research offers the first concise entry point for researchers considering empirical studies on financial performance feedback and R&D relationship.
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